Canada's OSFI outline strategy that will ensure stable financial and real estate sectors, although hurting investors and homeowners in short run

Analyst Commentary, Matthew Bovencamp: The Office of the Superintendent of Financial Institutions (OSFI) released their planning and priorities report for 2012-2015 outlining the continued strategy of risk mitigation. The document outlines a number of strategies and actions the OFSI is planning to implement over the next few years. One strategy of interest is their plan to increase oversight on mortgage insurers and perform liquidity reviews of residential mortgage portfolios of Federally Regulated Financial Institutions.

Over the past five years a number of changes have been made to the rules regarding insurable mortgages such as reduced maximum amortization, minimum down payments, and caps on the amount of mortgage insurance CMHC can have outstanding. The insurance cap has increased twice since the end of 2007, from $350 billion to $450 billion and then recently to $600 billion. Mr. Flaherty, however, has recently made it clear that Ottawa does not want to raise the cap again.

With the increased oversight from the OFSI and the rule changes from the Minister of Finance it is clear the Canadian government is concerned with the rising household debt levels and housing market and is looking to slow down the residential market. Although these actions may slow down the housing market and potentially increase the costs of mortgage rates, hurting investors and homeowners in the short run. We believe in the long run, these changes are prudent and necessary to reduce the risk of a US style housing crash.

Source: OSFI, Bloomberg (Apr 3), The Globe and Mail (Mar 23)

Facebook Comments Box